Fed rate cut prompts cheers — and caution — from bankers

It’s been a few weeks since the US central bank cut its benchmark interest rate by 50 basis points, its first cut in more than four years, and bankers are optimistic about the prospect of a strong fourth quarter as a result. Management says that now that the ball is rolling, the Federal Reserve needs to be cautious about the pace of future cuts.

Barometers such as the KBW Nasdaq Bank Index rose more than 1% in the hours after the Fed’s announcement, while other bank stocks followed suit amid a flurry of investment activity.

Since then, the leaders of Federal Reserve Bank of Dallas and $3.3 trillion in assets Bank of America emphasized the importance of the pace and intensity of any planned rate cuts — slow and steady is the best approach.

“If the economy continues to develop, as I now expect, a strategy of gradually reducing the interest rate to a more normal or neutral level could help manage risks and achieve our goals,” said Lori Logan, president of the Federal Reserve Bank of Dallas, during remarks at the Association’s annual meeting. securities and financial markets industry in New York this month. “However, any number of shocks could affect what that path to normality looks like, how quickly policy should move and where rates should be set.”

They are not alone. Fed Governor Michelle Bowman was the lone dissenting voice in the agency’s decision to cut by half a percent last month, which said in a statement that a “judged move toward a more neutral policy stance” would be a more effective way to contain inflation without “unduly stoking demand.” .”

More details: What does the Fed’s interest rate cut mean for investors?

In the third quarter, as in the previous quarter, lending proved to be a stumbling block for US banks.

Financial ally reported net income of $357 million in the third quarter, up 20% year-over-year, but also increased its loan loss provisions to $645 million from $508 million in the same period last year, as write-offs of retail car loans increased.

“I want to acknowledge that the next few quarters are going to be volatile,” Ally CEO Michael Rhodes said on the company’s earnings call. “I remain confident in our franchise and our ability to deliver compelling returns.”

Assets of $119.2 billion Synchrony Financial also increased its loan loss provisions by $106 million year over year to $1.6 billion in the third quarter as higher net charge-offs as a percentage of average loans reached 6.06%.

More details: Five areas to look out for when banks report Q3 earnings

Below is information on the performance of the leading US banks in the third quarter and how market factors affected the subsequent activity of investors.

Credit problems ahead, JPMorgan Chase executives say

Credit turns out to be a difficult area to get used to JPMorgan Chaselike many other institutions in the US

The nation’s largest bank by assets saw net charge-offs rise 40% in the three months ended Sept. 30 from a year earlier and boosted its loan loss provisions to $3.1 billion from $1.4 billion a year earlier same quarter last year. year.

Jeremy Barnum, the bank’s chief financial officer, said on a conference call discussing the bank’s third-quarter earnings that these challenges will continue in the coming months “as normalization continues … but we remain optimistic and focused on execution to continue to deliver excellent earnings through the cycle .”

JPMorgan Chase’s earnings per share beat analysts’ expectations of $4.37, compared with the $3.98 forecast.

More details: JPMorgan Chase predicts an increase in credit hurdles

An increase in Bank of America loans implies an increase in demand

The management of Bank of America noted that, despite the hesitation among business customers to make large investments, the increase in the average number of bank loans by 1% is a positive sign.

“I don’t know if it’s too early to call it a streak, but we’re obviously happy to see it,” Alastair Borthwick, chief financial officer at the $3.3 trillion Charlotte, North Carolina-based bank, told analysts. 15.

The company’s third-quarter net income of $6.9 billion was down from $7.8 billion a year earlier, but fees from its investment and brokerage divisions rose 15% over the same time period. Sales and trading revenue also increased by 12%.

More details: Bank of America loan growth signals that demand is returning

Citigroup executives say asset restrictions are unlikely

After remarks by Sen. Elizabeth Warren, D-Mass., who called on regulators to stymie Citigroup’s growth, and after TD Bank Group’s U.S. asset growth was capped, Citi CEO Jane Fraser played down analysts’ concerns about such restrictions.

“Let me be absolutely clear: We have no asset restrictions, and there are no additional measures other than those announced in July, and (we) do not expect any,” she said.

The $2.4 trillion bank has faced significant regulatory challenges after coming under fire two consecutive consent orders and a $400 million fine in the fall of 2020 for vulnerabilities in its risk management and internal control programs.

Warren’s calls for limits followed concerns that the bank had become “too big to manage”.

More details: Citi doesn’t expect asset caps, CEO Fraser says

US Bancorp expects more growth in the coming months

US Bancorp management is confident that despite modest demand for loans in the third quarter, lower interest rates, which continue to decline, will support demand growth for the rest of the year.

John Stern, the chief financial officer of the bank with assets of 686 billion dollars, said this in an interview with American Banker. Jim Dobbs that “certainly more interest” from borrowers after Fed interest rate cut last month, and that “the mood in the economy is positive.”

Average total loans declined slightly by 1% year-over-year, while net interest income rose to $4.1 billion from $4 billion in the prior quarter. “Bottom line, some mixed trends, but NII was a real plus,” Piper Sandler. said analyst Scott Siphers.

More details: US Bancorp expects more growth despite weak lending activity

NYCB Flagstar plans to lay off 700 employees

Flagstar Bank is cutting 700 jobs — about 8 percent — of its total workforce as part of New York Community Bank’s foreclosure plans to reopen.

“While these strategic actions involve difficult decisions, including job impacts, we believe they are important to strengthen our financial foundation and create a more agile and competitive company,” Chief Executive Officer Joseph Otting said in a statement on Oct. 17 , which released information about the numbers.

Executives also predict that the agreement to sell it of Mr. Cooper’s mortgage service will result in an additional 1,200 layoffs when the deal closes at the end of the fourth quarter.

More details: Flagstar NYCB is cutting 700 jobs, with more to go through unit sales